Is bankruptcy a possibility for GM?

Although a bailout of Detroit still looks fairly likely, the underlying question is the exact financial status of GM (and Chrysler) and how any bailout can actually help them. With the recent steep declines in car sales and prospects for economic weakness in the next few months, even I have to conclude that GM is likely to need to file for bankruptcy within the next two months. It is not even clear if $8 billion in bailout funds will tide GM over for two months if sales continue to decline. If they had decent sales, restructuring would be doable, but with declining sales, restructuring on the fly with all of their debt, health care, and retirement obligations becomes problematic. If even Toyota is struggling and has decided not to open a new plant, then you know things have to be really bad for Detroit.

There are probably still quite a few tricks GM can pull to limp into January, but the question is whether it is really worth their effort if sales are still trending downwards. They might in fact be better off slamming on the breaks, shutting down all production and sales, filing for bankruptcy, and then seeking bailout funds simply to pay minimal bills as they spend several months working through restructuring.

A basic restructuring problem is how to deal with their massive debt. Bankruptcy is the easiest and cleanest way to deal with the debt burden. GM can probably continue to limp along with the debt, but that is not viable in the long term. There are probably a few trick that Treasury can do to help out with the debt (e.g., swap a Treasury guarantee for a much lower rate), but even that does not solve the long-term viability issue.

We will have to see what "plan" Treasury comes up with. If the conditions are onerous enough, GM might decide that bankruptcy is actually less painful.

-- Jack Krupansky